The Devil Is In The Detail
The mysteries of the Chancellor's minimum hourly wage of £6.40 are explored by Elizabeth Lathwood BA(Hons), ATII.
The Devil Is In The Detail
The mysteries of the Chancellor's minimum hourly wage of £6.40 are explored by Elizabeth Lathwood BA(Hons), ATII.
One might be feeling a little tired by the end of Thursday 8 March 2001 with all the figures that floated out of the Budget speech. With all the talk of stealth taxes, there is perhaps a certain feeling of distrust on some of the figures quoted. The following is an extract from the Budget speech under the heading of the minimum wage: 'this takes the minimum rate for those on working families tax credit not just to £4.10 an hour but to £6.40 an hour'. The figure of £6.40 comes from an income of £225 a week and appears to follow the assumption of a one or two parent family with one young child and one parent working a 35 hour week. It is interesting to prove how such a family moves from £4.10, the new statutory minimum wage paid by an employer, to the Chancellor's figure of £6.40. This represents a rise of £2.30 per hour or £80 a week. How does the family get this extra money?
Complicated calculus
The calculations are as follows, and show how the family gets the extra £2.30 eventually:
- The employer pays the national minimum wage of £4.10 for 35 hours work, so the gross pay is £143.50.
- This produces a National Insurance liability of £5.65, calculated on a weekly non-cumulative basis: the first £87 is exempt, the balance of £56.50 is chargeable at 10 per cent.
- The income tax charge is as follows:
Annual income (52 x £143.50) | £7,462 |
Less: personal allowance | £4,535 |
